1 year ago



Got Grants? Public and

Got Grants? Public and Private Sector Federal Grant Recipients Not Immune to False Claims Act Liability continued from page 15 Recent FCA Cases against Federal Grant Recipients Recent FCA lawsuits and settlements announced in the past six months give a glimpse of the variety of entities and factual circumstances that are implicated by the FCA. Research universities, in particular, have been targeted. For instance, in September 2016, a former employee of Duke University’s pulmonary division filed a whistleblower suit alleging that the University and former colleagues falsified data in research funded by the National Institutes of Health (NIH) and the Environmental Protection Agency. The complaint alleged that the defendants ignored red flags concerning the validity of the research and withheld knowledge of potential fraud in applying for further grants. Because the whistleblower alleges that the research funds were “ill-gotten,” in that the defendants procured them through fraudulent representations in grant applications and other submissions, he sought damages based on more than $200 million in total grant funding, trebled, plus penalties. Private companies that receive federal grants can also be FCA targets. In July 2016, two medical device companies and their owner faced a $4.5 million judgment for purported false statements in applications for NIH grants worth millions of dollars over eight years, along with false statements in grant reports concerning compliance with requirements on how the grant funds could be spent. In announcing the judgment, DOJ emphasized the Government’s commitment to prosecuting FCA violations, including by grant recipients, stating that the U.S. Attorney’s Office “will continue to vigorously pursue fraud against the Government, and will work to ensure that companies and their leaders who receive taxpayer dollars are truthful and accurate in their dealings with federal agencies like NIH.” Practical Tips for Monitoring Grant Compliance and Avoiding FCA Exposure The Government’s increased scrutiny of compliance with federal grant requirements demands that grant recipients or entities that do business with grantees have robust controls for monitoring expenditures and ensuring compliance with all grant conditions. Employees should be thoroughly trained on the risks and importance of compliance. Grantees should consider conducting regular audits in order to get ahead of any issues. Given how the FCA incentivizes whistleblowers, grantees should have fulsome procedures for internal reporting, including a hotline, and fully investigating concerns that emerge. Training and compliance can make the difference in preventing noncompliance, while fulsome investigations and remedial measures can help prevent compliance problems from turning into potential FCA allegations. For more information, please contact: Kendra P. Norwood 202.719.7069 Dylan Hix 202.719.7557 Page 16 Government Contracts Issue Update

The False Claims Act: Leveling the Playing Field By Roderick L. Thomas and Brandon J. Moss In December, the U.S. Department of Justice (DOJ) announced that it recovered over $4.7 billion from False Claims Act (FCA) cases in 2016. This was DOJ’s third-highest annual revenue from FCA recoveries, and pushed the seven-year-average recovery to just over $4 billion. More and more often, however, those recoveries reflect settlements from likely blameless companies who make a business decision to choose settlement as a way to avoid the high costs, potential treble damages, and collateral consequences flowing from defending the allegations. While it is not hard to argue that actual government “waste, fraud and abuse” must be addressed, too often that policy objective is invoked to justify the imbalance in FCA litigation that strongly favors the Government and relators. Yet, the Government effectively acts as a private civil litigant in this space— frequently threatening treble damages and expensive discovery to extract settlements from companies who did not knowingly submit false claims for payment. This tilts the settlement calculus for defendants, who must consider not only questions of right or wrong, guilt or innocence, but also the significant cost of trying to win when many cards in the deck are already stacked against the defendant. This article addresses potential FCA reform from the perspective of FCA defense counsel versed in the imbalance built into the FCA that creates this uneven playing field. It focuses on three overarching areas for improvement: discovery practices, bars to recovery, and damage relief. Problems in FCA Discovery ■■ Extended CID/Investigative Process: Using Civil Investigative Demands (CID), which allow the Government to collect information from potential defendants through documents, testimony, and interrogatories, the Government can obtain all of the information it needs to build a case against a contractor before traditional discovery commences. Not only can responding to CIDs be costly, without a reciprocal exchange of information from the Government, it can be difficult for contractors to make their case as to why the matter should not move forward. This is compounded by the disparity between the lengthy period in which a relator has to put together a case and convince the Government to intervene (including the Government’s investigation) and the comparatively short period a contractor has to convince the Government not to intervene. ■■ Risk of Spoliation: Given the long statute of limitations and slow pace at which the Government typically investigates FCA allegations while a complaint remains under seal, it becomes less and less likely that key government documents—often located at the agency with which the contractor was dealing—will be available when discovery commences. Indeed, presently, the Government typically does not issue preservation notices to affected agencies until after it decides to intervene, rather than while the investigation is ongoing, which increases the spoliation risk for relevant information. ■■ Discovery Against the Government: Once discovery begins, defendants must frequently jump through unnecessary hoops to obtain the evidence they need to defend themselves. Especially in cases where the Government declines to intervene, Touhy requests and Rule 45 subpoenas are burdensome and costly discovery tools for the defense. continued on page 18 ©2017 Wiley Rein LLP Page 17

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